Open for Private Investment in Vietnam Railways

The revised Railway Law has just been passed by the National Assembly will create attraction for investors to set up company in Vietnam to invest in infrastructure and railway projects.

The revised Railway Law has just been passed by the National Assembly and is expected to come into force on July 1st 2018 with many preferential mechanisms that will create attraction for investors to invest in infrastructure and railway projects.

Up to now, Lotte E&C (Korea) is the most zealous foreign investor in the Yen Vien – Lao Cai Railway Upgrading Project and the project to build railway connecting Lao Cai – Ha Khau in the form of PPP. Previously, in mid-February 2017, a preliminary study including investment plan, capital size and project repayment capacity was submitted by the Korean investor to the Ministry of Transport. In addition to the proposal to apply the form of build – lease – transfer (BLT), Lotte also wants to receive some incentives during the implementation of the project.

It is known that with the type of BLT contract, Lotte will invest capital to build infrastructure. Upon completion, the investor is entitled to provide services on the basis of operating that facility in a determined period of 20 years. The competent state agency shall hire the service and pay to the investor, when expired, the investor shall return the facility to the competent State authority for management and use.

Moreover, the Railway Law (amended) has added a number of provisions, which are considered to be the great drive for the railway sector. Specifically, the rail transport business is defined as the industry that is entitled to investment incentives; Organizations and individuals engaged in railway activities shall be entitled to incentives and supports such as free land use fees for land area for infrastructure construction, the highest incentives level for enterprise income tax rate, enjoy the most preferential credit policy; applying the pricing mechanism for the mode of leasing or transferring the right to exploit railway infrastructure.

These regulations will create breakthroughs in investment resources, attracting businesses to concentrate resources on railway development, in fact many countries have similar policies.

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Forms of Public Private Partnership Investment in Vietnam

Public investment in Vietnam is not just limited to the transportation infrastructure, electricity, renewable energy, water, health and environment, but also in areas such as education, training, vocational training, culture, sports, commercial infrastructure complex, science and technology, economic zones, industrial zones…

Vietnam is in the development stage that needs significant investment in infrastructure.  However, the state budget is limited, and donor funds have been reduced and limited. Therefore, the investment pattern in the form of public-private partnership (also known as PPP) is an effective solution to this problem. PPP has been expected to mobilize resources for investment in infrastructure from the private sector, from both domestic and foreign investment.

Investments in the form of public-private partnership investment is made on the basis of contracts between competent state agencies and investors or project company for the implementation, management and operation of the project in infrastructure, or providing public services. Accordingly, investors, project company shall be authorized to implement investment projects on construction or renovation, upgrading, expansion, management and operation of infrastructure projects or providing public services.

The investment contracts in the form of public-private partnership are defined in Vietnam as following.

BOT Contract

“Build – Operate – Transfer contract” (referred to as BOT contract) means a type of contract to build an infrastructure project between a competent state agency and an investor; after completing the construction, the investor shall be entitled to operate it for a specified period of time; eventually, the investor shall transfer it to the Vietnam competent state agency.

BTO Contract

“Build – Transfer – Operate contract” (referred to as BTO contract) means a type of contract to build an infrastructure project between a competent state agency and an investor; after completing the construction, the investor shall transfer it to the competent agency, and shall be entitled to operate it for an agreed period of time.

BT Contract

“Build – Transfer contract” (referred to as BT contract) means a type of contract to build an infrastructure project between a regulatory agency and an investor; after completing the construction, the investor shall transfer it to the competent agency, and then the investor will be allotted a land parcel used for carrying out another project.

BOO Contract

“Build – Own – Operate contract” (referred to as BOO contract) is a type of contract to build an infrastructure project between a competent agency and an investor; after completing the construction, the investor shall take ownership of this project and have the right to operate it for a specified period of time.

BTL Contract

The Build – Transfer – Lease contract (referred to as BTL contract) means a type of contract to build an infrastructure project between a competent agency and an investor; after completing the construction, the investor shall transfer it to the regulatory agency and shall be entitled to provide services on the basis of operation of such project for a specified period of time; the competent agency shall lease and make payment for the investor’s services.

BLT Contract

“Build – Lease – Transfer contract” (referred to as BLT contract) means a type of contract to build an infrastructure project between a competent agency and an investor; after completing the construction, the investor shall have the right to provide services on the basis of operation of such projector a specified period of time; the competent agency shall lease and make payment for the investor’s services according to the regulation; when the lease term expires, such project shall be transferred to the competent agency.

O&M Contract

“Operation & Management contract” (hereinafter referred to as O&M contract) means a type of contract to operate the project between a competent agency and an investor for a specified period of time.

ANT Consulting is here to assist you from the outset; providing corporate intelligence, risk advisory, management consulting services that assist market entrance, and ensure efficient business start-up operation.  Our services are as following:

• Advisory
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• Legal Advice

We strive to save your cost by guiding you towards economical solutions that comply with local legislation and procedures. We support you through early logistic solutions and carry you through as your business grows.  We aim to bridge the gap between international best practices and local cultures and assist foreign companies and organizations entering Vietnam market to overcome commercial and regulatory issues.

We could be reached at email: ant@antconsult.vn or tel: +848 3520 2779 .  To learn more about us, please visit www.antconsult.vn

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